Key View: Poland's energy and utilities sector will grow by an annual average of 2.1% per year to 2026. As the hydrogen sector develops, the rapid expansion of imported natural gas and the expansion of the renewables sector will be supplemented by broader decarbonisation opportunities over the coming decade.
Decarbonisation will continue to drive investment across Europe into low-carbon energy sources, while coal developments will stall. Recent developments in Poland, currently among Europe's most reliant markets on coal power, lead us to expect that the development of large-scale renewable and nuclear projects coming online will coincide with the closure of the market's less-efficient power plants. For infrastructure, greater deployment of renewable energy assets will necessitate concurrent investment in grid infrastructure to ensure the effective utilisation of these energy sources. Over the short-to-medium term, natural gas will remain an important component of the country's energy mix. The expansion of the country's LNG import terminal and the introduction of an FSRU at the port of Gdansk, along with the opening of interconnectors with Lithuania, Slovakia and Norway, will reduce the country's dependence upon Russian imports after 2025.
The Polish government has announced that it intends to phase-out coal mining by 2049, while planning to spend EUR40bn on six nuclear reactors and EUR28bn on offshore wind in its updated energy strategy for 2040. The government also announced that coal's share of generation will fall from its 2021 levels of 76% to between 37% and 56%. Our outlook is more conservative, with an estimated reduction in generation for the sector, falling to 55% by 2030. This estimate is based on the small-scale closures seen from operators, with plants having declining economic performance under more stringent EU emission regulation.
Solar To Continue Outperformance
Poland's renewables sector is set for continuous strong capacity growth over the decade, with the solar sector becoming increasingly attractive for developers. We forecast an additional 17.0GW of non-hydro renewables capacity will come online between 2021 and 2030. We expect to see increases in output, with the sector's share of total generation rising from 18.3% to 30.4% over the same time period. Our positive outlook is supported by robust momentum in both the solar and wind power sectors with upside risks to both. In particular, solar growth in Poland has accelerated rapidly over the past few years from less than 500MW over 2018 to what is set to be 6.3GW over 2021 and 16.9GW by 2030. In contrast, the wind sector will see more modest growth, rising from 6.3GW in 2021 to 12.3GW in 2030. That said, continuing developments in the market's nascent offshore wind sector pose upside risks to more capacity being included in our forecasts. We expect the non-hydropower renewables sector, including the solar industry, to get increasing levels of support amid the green energy transition policy drive from both the national and EU levels. Across the EU we expect to see a compounding of regulatory, policy and fiscal measures impact the power sector in the near term.
Offshore wind is poised to play a large role in the Polish power sector. We currently forecast an additional 6.0GW of wind capacity to come online between 2021 and 2030, taking the sector's share of total generation to 15% by the end of the decade. This includes an additional but conservative 1.5GW of offshore wind capacity, with considerable upside risk mounting due to support for the sector and a growing project pipeline. Over H220, new legislation sought to fast-track offshore wind projects already in planning; developers would be supported by similar mechanisms to those seen in the UK, with a two-stage contract for CfD model. 5GW of capacity will be selected by Poland's energy regulators by the end of 2021 before a further 5GW of auctioned capacity across two tenders towards the end of the decade. Over Q121, Polish senators approved the bill to stimulate development of offshore wind capacity in the country. The bill, which became effective on February 1 2021, envisages subsidising 10.9GW of projects in the Baltic Sea. The first phase of the support mechanism will see Poland allocating incentives for 5.9GW of new offshore wind projects, with power generation expected to begin in 2025. In the second phase, Poland will hold tenders for CfD for 5GW of capacity, unlocking USD35.2bn of investment.
EU Green Infrastructure Push To Characterise Developments In Sector
The NGEU fund, an unprecedented EUR750bn recovery fund, and the commitments for climate change-related investments that it entails, demonstrate the bloc's continuing commitment to its long-term decarbonisation efforts amid the short-term upheaval of the Covid-19 pandemic. Forming the basis for the bloc's collective fiscal stimulus in light of the pandemic, the NGEU plan comprises EUR500bn in grants and EUR250bn in loans, which would be wrapped together with the EU's next seven-year Multiannual Financial Framework. While the EU's aim is to ensure the broad economic recovery of its member states, we view the plans as offering the potential to support, if not accelerate, the EU's long-term decarbonisation efforts. The plans demonstrate that although the virus's economic impact remains severe, the EU rightly views the necessary economic stimulus as an opportunity to further establish investment and support its path towards carbon neutrality. We share this assessment of the opportunities for green infrastructure investment amid the broad economic stimulus being deployed globally.
While the impetus for this development in EU policymaking was unforeseen, our Infrastructure Key Themes For 2020 noted our expectations for the EU to further cement its position as the leading region for policy-driven efforts for investment in green infrastructure. Following the onset of Covid-19, the EU's leading position in this area remains, with recently unveiled policies by the bloc further solidifying its lead in such policies.
The EU's existing European Green Deal is providing the thematic framework with which the EU will seek to channel its recovery funding to ensure that this bout of economic stimulus works to support the EU's long-term ambitions to realise carbon neutrality. We highlight renewable energy, transport infrastructure supportive of low-emission travel and energy efficiency initiatives as the primary areas for financing as each would offer sustained support for the EU's decarbonisation ambitions. Member states' respective National Energy and Climate Plans will steer financing towards projects that address specific challenges in energy infrastructure, for example.
We have previously highlighted that while the overall European Green Deal Investment Plan focuses primarily on green infrastructure and projects conducive to decarbonisation, the Just Transition Fund (JTF) represents an additional tranche of funding to create investment opportunities in regions set to experience the most acute disruption from decarbonisation. Its proposed national allocations remain broadly consistent with those outlined in its initial unveiling, with Poland set to receive the largest individual allocation. These are calculated with consideration of a range of economic and social factors, including gross national income per capita, greenhouse gas emissions from industry, and the level of employment in carbon-intensive industries.
The agreement has reduced the NGEU's initial commitments to ramp-up direct investment in infrastructure, power and renewables, primarily via the JTF that seeks to channel financing to regions facing the greatest challenges in the bloc's route to carbon neutrality. First announced as a EUR7bn financing package under the EU's European Green Deal, the JTF saw its funding increase to EUR40bn under initial NGEU proposals; however, this latest agreement has seen this figure reduced to EUR10bn. Although this cutback will dishearten proponents of green infrastructure across the EU, the EU's commitment to the bloc's wholesale decarbonisation remains robust, both in terms of rhetoric and financing provisions to this end. EU efforts to decarbonise remain a guiding principle in the overall deployment of the NGEU in that its investment must not directly hinder the bloc's climate change-related policy ambitions.
EIB To Shift Away From Financing Of Carbon-Intensive Projects Despite Caution From Central And Eastern Europe
The European Investment Bank (EIB) has now finalised its Energy Lending Policy, which outlines its intentions to cease the funding of projects that do not meet a low-emissions performance standard of 250 grams of CO2/kWh. The EIB will now seek to increase the share of its financing for climate change-related projects to reach 50% of its operations from 2025, a move that it claims will enable EUR1trn of climate change-related investment within the next 10 years to 2030. Ultimately, these efforts will aim to achieve a renewable energy share of 32% in the EU by 2030. The lending policy update largely remains intact from its draft form, for which we highlighted the implications for infrastructure investment amid intensifying efforts from EU institutions for climate action policy. We have highlighted the eligibility of gas infrastructure that would enable the supply of low-carbon gases in the draft as a tacit acknowledgement of the role for gas in easing Europe's transition to a low-emission future.
The EIB has lent EUR13.4bn to fossil fuel infrastructure projects since 2013, demonstrating the financial capacity that this move will free up for climate change-related investments. The institution also features heavily across our Key Projects Database, highlighting its significant role in the provision of project financing through the EU. More broadly, the EIB emphasises the need to increase the financing of decentralised energy production, indicating that projects entailing energy storage solutions and low-emission transport can expect to receive greater financing support in future.
This move by the EIB will bolster the EU's firepower in its efforts to combat climate change and realise carbon neutrality within the bloc by 2050. Crucially, it leaves open the potential for natural gas to ease the transition of carbon-intensive member states towards a state in which renewable energy assets account for the bulk of power generation. The 2021 cut-off for the funding of fossil-fuel projects also comes a year later than originally proposed by the EIB and has likely been pushed back following unease among EU member states. Even with this compromise, this outcome was insufficient for Poland, Romania and Hungary to offer their support, primarily due to their concerns regarding their transition away from a reliance on the firm power of coal to reliance on intermittent renewable energy sources.